Venezuela takes on oil multinationals

Stuart Munckton

4 May 2007

“Thousands of Venezuelan
workers took control of foreign-owned oil fields yesterday as Hugo Chavez stepped up his battle with Washington in a new wave
of nationalisation and an announcement that the country was leaving the World Bank and the International Monetary Fund [IMF]”,
reported the British Guardian on May
2.

The paper reported on the most
significant of the new moves by the pro-working-class government of President Hugo Chavez to “deepen” the pro-poor
revolution it is leading in order to create “socialism of the 21st century” — the forcing of the foreign
oil giants operating in the Orinoco Belt, believed to hold the world’s largest reserves of crude oil, into joint ventures
with PDVSA that will give the state-owned oil company at least 60% control. The investments of ConocoPhillips, Chevron, Exxon
Mobil, BP, Statoil and Total in the area amount to US$17 billion.

Chavez gave oil corporations until May 1 to cede
control. All but ConocoPhilips struck agreements handing a majority of shares over to PDVSA. The Guardian reported that oil workers began gathering at key installations
on the evening of April 30. The paper reported: “Amid jubilant scenes, oil workers wearing red T-shirts emblazoned with
‘yes to nationalisation’ moved into the giant Orinoco basin shortly after midnight …”

The
moves follow the bitter, and ultimately successful, battle to bring PDVSA under full government control in 2003. Previously,
the nominally state-owned industry was run by a corrupt elite that, before Chavez’s election in 1998, had begun preparing
for the industry’s privatisation. Only 20% of PDVSA’s revenues were being handed over to the state.

Despite
being the largest oil producer in Latin America, when Chavez was
elected the majority of Venezuela’s
population lived in poverty. The PDVSA elite allowed private oil corporations access to Venezuela’s
oil reserves in the 1990s under a policy known as the “opening”.

As well as imposing a series of tax and
royalty hikes on oil corporations operating in the country, last year the government forced 32 private operations into joint
ventures with PDVSA that gave the company a majority share. Corporations that failed to come to an agreement were forcibly
taken over.

The government has used the growth in oil revenue, a result of high prices and increased government control
of the industry, to fund its social missions, which are aimed at redistributing wealth and empowering the poor. Pro-poor policies,
which are at the heart of the Bolivarian revolution led by Chavez, have resulted in a reduction in the official level of households
living in poverty from just under 50% at the time of Chavez’s election to 37% by 2005.

Following his re-election
in December, with the largest number of votes in Venezuelan history and on an explicit platform of constructing socialism,
Chavez insisted that strategic industries need to be under government control, and that “all that was privatised, let
it be nationalised”. Venezuela’s
largest telecommunications company and six electricity companies have since been nationalised.

While angering the
US government and Venezuela’s
corporate-owned media, such policies are strongly supported by working people. Reuters reported that at midnight on May 1, workers who had gathered for a symbolic event welcoming the takeover “exploded
into a frenzied celebration after a New Year’s Eve-style countdown, dancing until the early dawn hours with some standing
atop a pipeline that runs toward the installations”. Venezuelanalysis.com reported on May 2 that PDVSA oil workers at
the event symbolically swapped their traditional blue helmets for new red ones — the colour of the Bolivarian revolution.

Speaking to oil workers on April 30, energy minister Rafael Ramirez said: “Welcome to the new PDVSA. Here we
begin the real petroleum nationalisation.” He explained, “The existing oil reserves in all national territory
… belong to the republic and are goods of the public domain. Venezuela
is exercising its right to administer its natural resources for the benefit of the people.”

Venezuelanalysis.com
reported that Chavez addressed a gathering of 40,000 oil workers and supporters at the Industrial Complex Jose Antonio Anzoategui,
on May 1 to celebrate the takeover and May Day, the international workers’ day. Standing in front of a banner reading
“Full oil sovereignty. Road to socialism”, Chavez said: “Finally, today we have buried the 10 years of petroleum
opening [to private corporations … Imperialism dominated our basic industry, our energy resources and our natural resources
for a long time. That is over today.”

This year’s May Day further signalled the degree to which the Chavez
government is attempting to deepen the revolutionary process in favour of the poor and working people. Venezuelanalysis.com
reported on May 1 that the previous evening Chavez announced an increase in the minimum wage of 20%, bringing it to $286 per
month, the highest in Latin America. The minimum wage has been repeatedly increased under
Chavez; it was $183 per month when he was first elected.

Chavez explained that previously, conditions imposed on Venezuela
by the IMF required low wages. Responding to criticism from the right-wing, opposition-controlled Confederation of Venezuelan
Workers that the increase was insufficient, Chavez pointed out that public service workers also receive food stamps worth
$209, making the real minimum wage for public sector workers $495 per month.

A May 2 Bloomsberg.com article reported
that the government also used May Day to announce plans to slash the working week from 44 hours to 36 hours by May 1, 2010. A commission has been established to draw up a new
labour law, with shortening of the working week a key component. According to labour minister Jose Ramon Rivero, the law would
also protect household labour, require bosses at firms with more than 20 workers to provide meals, and promote the organisation
of socialist education classes in workplaces.

Venezuelanalysis.com also reported that Venezuela
was officially withdrawing from the IMF and World Bank. The Chavez government has been an outspoken critic of the institutions,
which force neoliberal policies on Third World countries that further
impoverish the population. Venezuela
has initiated, with the support of Argentina,
Bolivia, Ecuador
and Brazil, Bancosur — the Bank of
the South. Bancosur aims to provide an alternative source of cheap credit for Third World
countries without imposing harsh conditions.

Chavez announced that Venezuela
finished paying off its debt to the World Bank and IMF on April 13, and is demanding the IMF pay Venezuela
the $3.9 billion it has invested in the institution. Chavez said: “We do not need to go to Washington,
to the [IMF] nor to the World Bank. We will withdraw. I want to sign the order this evening and ask that they return what
is owed us.”

VENEZUELA: Foreign-operated oil fields taken over

Gregory Wilpert, Caracas

Venezuela’s
state-owned oil company PDVSA took over seven oil fields in early April, which were previously run by foreign oil companies.
Five of these fields were ceded to PDVSA intentionally and the others — one run by the Italian oil company Eni and one
by the French oil company Total — PDVSA took over without the companies’ agreement.

The takeovers were
the result of the cancellation of so-called “operating agreements”, whereby foreign oil companies pumped Venezuelan
oil under contracts with PDVSA. Last year, PDVSA, though, informed the companies that they would have to transition their
operating agreements to joint ventures if they wanted to continue pumping oil in Venezuela.

Italy’s Eni said it is considering
challenging the takeover in court, reported AFP. “Eni believes that PDVSA’s decision constitutes a violation of
its contractual rights. Eni will give PDVSA some time to find an agreement that covers all of Eni’s rights”, said
a communique from the company. Eni produced 50,000 barrels of oil per day in Venezuela. Venezuela’s oil minister and PDVSA president Rafael Ramirez said that Total and Eni are resisting
compliance with Venezuela’s new hydrocarbons law, which only allows for joint ventures, not operating contracts.
“We were very flexible, with the understanding that the old PDVSA signed agreements, in the name of the state. But this
is not a confrontation, it’s what the law says”, said Ramirez. “We’re
not going to trample over anybody but we can’t accept being trampled on either”, he added. “Companies that
don’t adjust to our laws, we don’t want them to continue in the country.”

Venezuela’s ambassador to Spain
clarified that Eni and Total are still involved in oil production in Venezuela, despite the takeovers
of some of their fields. “Total maintains a 47% participation in the Orinoco Oil Belt”, said Arevalo Mendez. Also,
Eni is, “participating in two exploratory projects that are broadly promising in Venezuela”.
Venezuela’s Ministry of Oil and Energy announced early last year that all companies involved
in oil production operating agreements in Venezuela would have to initiate a transition to joint ventures with PDVSA. Towards the end of the
year the ministry announced that agreements had been reached with nearly all companies. The agreements were finalised on April
1 of this year, right after the deadline for the transition ran out on March 31.

Aside from forcing
companies to share risks and profits with the state-owned oil company, the new legal framework, which had been passed in November
2001 with the new Hydrocarbons Law, also changed taxes and royalties. While foreign oil companies previously had to pay a
maximum of 36% taxes, they now are required to pay 50%. Royalties, which mainly affect oil production in the Orinoco Oil Belt,
were increased from 1% to 30%. Also, the law specifies that PDVSA has a minimum participation of 60% in all joint ventures.

ExxonMobil is another
company that announced early on that it would not accept the new legal framework. A few months ago ExxonMobil announced that
it would sell its stake in one of the operating agreements to Spain’s Repsol. Ramirez’s
response to the move was, “We don’t want them here then.” Nonetheless, ExxonMobil is still actively producing
120,000 barrels of extra-heavy oil in the Orinoco Oil Belt, where it has a 42% stake in a joint venture.

Of the 32 operating
agreements with 18 oil companies, 22 joint ventures with PDVSA have been created, involving 16 oil companies. The oil production
volume of these joint ventures will be 600,000 barrels per day, representing 18% of Venezuela’s
total production of about 3.3 million barrels per day. PDVSA will have an average participation of 63% in these joint ventures.
Rafael Ramirez said that the joint ventures would allow PDVSA to make sure that
the oil is produced far more efficiently than under the old arrangement. Previously oil companies merely billed PDVSA for
their costs of producing the oil, which, according to PDVSA, inflated their costs tremendously. We estimate that the production
cost per barrel will drop from $22 to $7 and the goal is to level off at $4, which is what our own production [now] costs”,
said Ramirez.

PDVSA has justified
its demand that companies transition to joint ventures by saying that the original agreements violated both Venezuela’s
old 1961 constitution, under which the agreements were signed, and the new 1999 constitution. Venezuela’s
National Assembly passed a new law on April 5, which clarified the requirement for companies to be only involved in Venezuela
as minority stake holders in joint ventures. Another move that has caused unease
among foreign oil companies doing business in Venezuela is that Venezuela’s tax collection agency, SENIAT, has stated that many companies owe back taxes.
Last week, SENIAT’s director Jose Vielma announced that ChevronTexaco had accepted to pay $50 million in back taxes,
interest, and fines. BP, the British oil company, would pay $14 million and France’s Total already
paid $19 million. According to SENIAT estimates, foreign oil companies still owe as much as $2 billion in back taxes covering
the past ten years.

With the price of Venezuelan
oil, which generally sells for less than many other types of oil due to its high viscosity and sulfur content, exceeding $50
per barrel, oil companies in Venezuela have complained relatively little about the changing conditions.

Also, according to
a recent US department of energy report, investing in Venezuela
is still much easier than in Mexico or Saudi
Arabia, both of which practically prohibit
foreign oil companies from producing any oil.